Case Number: BC532006    Hearing Date: August 11, 2014    Dept: 32

CASE NAME: Willie Sy, et al. v. Bayview Loan Servicing, LLC, et al.
CASE NO.: BC532006
HEARING DATE: 08/11/14
DEPARTMENT: 32
CALENDAR NO.: 7
SUBJECT: Demurrer to the Verified Amended Complaint
MOVING PARTY: Defendants Bayview Loan Servicing, LLC, The Bank of New York Mellon, and Mortgage Electronic Registration Systems, Inc. (“Defendants”)
RESP. PARTY: None

COURT’S TENTATIVE RULING

Demurrer to First Amended Complaint (FAC):

First Cause of Action (wrongful foreclosure) SUSTAINED WITHOUT LEAVE TO AMEND.

Second Cause of Action (violation of Business and Professions Code §17200) SUSTAINED WITHOUT LEAVE TO AMEND.

Third Cause of Action (negligence) SUSTAINED WITHOUT LEAVE TO AMEND.

Fourth Cause of Action (promissory estoppel) SUSTAINED WITHOUT LEAVE TO AMEND.

Fifth Cause of Action (breach of written contract) SUSTAINED WITHOUT LEAVE TO AMEND.

STATEMENT OF THE CASE

This is an action by homeowner/ borrowers against financial institutions and related entities asserting a number of claims relating to a real estate loan and the lender’s effort to foreclose on the subject property located in Covina, California. The moving parties have demurred to all causes of action in the FAC. There has been no opposition filed by Plaintiffs.

According to the FAC, on or about January 2007, Plaintiffs executed a Note and Deed of Trust in the amount of $825,000.00 with America’s Wholesale Lender to purchase real property commonly known as 2534 Martingail Drive, Covina, CA 91724 (“Subject Property”). (Compl. ¶13, Exh. A). The Deed of Trust was recorded against the Subject Property. (Compl. Exh. A). Plaintiffs held title
to the Subject Property as joint tenants. (Compl. ¶ 1). The Deed of Trust designates America’s Wholesale Lender as lender, ReconTrust Company, N.A. as Trustee, and MERS as beneficiary, acting solely as nominee for Lender and Lender’s successors and assigns. (Compl. Exh. A).

On or about May 1, 2012, MERS assigned the Deed of Trust to BNY Mellon pursuant to an Assignment of Deed of Trust recorded on or about May 9, 2012. (Compl. Exh. B). On or about July 11, 2012, a Notice of Default was recorded in the official records of Los Angeles County stating Plaintiffs’ home loan was in default in the amount of $36,286.08 as of July 9, 2012. (Compl. Exh. C). On or about June 24, 2013, a Notice of Trustee Sale was recorded with
a sale date of July 24, 2013. (Compl. Exh. D). Plaintiffs allege that the Deed of Trust was never perfected and is null because the MERS recording separates the debt from the lien. (Compl. ¶ 14). Plaintiffs further allege MERS: (1) improperly acted as a Nominee for more than one principle, (2) cannot lawfully hold a Deed of Trust as a Nominee because MERS has no interest in the note, (3) failed to transfer beneficial interests when the Note and Deed were sold, (4) transferred the note to a new “Servicer” without Plaintiffs’ knowledge, and (5) improperly assigned the Deed of Trust. (Compl. ¶¶ 15-20). Moreover, Plaintiffs allege procedural defects with the handling of the Notice of Default and Notice of Trustee Sale. (Compl. ¶¶ 26, 29, 33). Finally, Plaintiffs allege they were
entitled to a loan modification based on the belief that Bayview entered into a Servicer Participation Agreement with Fannie Mae (acting as an agent of the federal government). (Compl. ¶¶ 56-59).

For the reasons set forth below, the court sustains the demurrers. The court has not received an opposition and therefor neither a request for leave to amend nor any statement as to what facts that could be alleged in an amended pleading. However, at the hearing Plaintiffs may make a proffer of the facts they would allege in a second amended complaint and request leave to do so as to all of the causes of action addressed below. In the absence of any request, and showing, the demurrers will be sustained without leave to amend.

ANALYSIS

Defendants demur to the first, second, third, fourth, and fifth causes of action for failure to state a claim.

A demurrer cannot be sustained if the complaint alleges the essential facts of some valid claim when construed liberally with a view to substantial justice between the parties. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 572.) If the complaint fails to plead any essential element of a particular cause of action, a demurrer should be sustained. (Rakestraw v. Cal. Physicians’ Serv. (2000) 81 Cal.App.4th 39, 43.) For purposes of demurrer, allegations of the complaint must be accepted as true. (Tiedje v. Aluminum Taper Milling Co. (1956) 46 Cal.2d 450, 454.) A court can disregard allegations that are contradicted by the express terms of an exhibit. (Freeman v. San Diego Association of Realtors (1999) 77 Cal.App.4th 171, 178.) A demurrer can be used only to challenge defects that appear on the face of the pleading under attack of from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

First Cause of Action – Wrongful Foreclosure

To state a claim to set aside a foreclosure sale, the Plaintiff must allege that a procedural irregularity constituted a substantial defect that was prejudicial to the trustor or claimant. (Knapp v. Doherty (2004) 123 Cal.App.4th 76, 96; see also Herrera v. Federal Nat. Mortg. Assn. (2012) 205 Cal.App.4th 1495, 1507.)

Plaintiffs allege that the Deed of Trust was never perfected and is null because the MERS recording separates the debt from the lien. (FAC ¶ 14). Plaintiffs further allege MERS: (1) improperly acted as a Nominee for more than one principle, (2) cannot lawfully hold a Deed of Trust as a Nominee because MERS has no interest in the note, (3) failed to transfer beneficial interests when the Note and Deed were sold, (4) transferred the note to a new “Servicer” without Plaintiffs’ knowledge, and (5) improperly assigned the Deed of Trust. (FAC ¶¶ 15-20).

Here, the deed of trust designated MERS as both the nominee for the lender and the beneficiary. California case law has held that MERS can be both the beneficiary and nominee under a deed of trust. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 273.) In light of this authority, Plaintiff has not alleged facts to establish that MERS lacked authority to assign the deed of trust. (FAC ¶ 14.)

Moreover, Plaintiffs fail to allege how they were prejudiced by the alleged imperfections of the foreclosure process. Plaintiffs allege the Deed of Trust assignment to BNY Mellon “has several errors and/or discrepancies. . . There is not sufficient evidence to show that the title chain was perfected prior to the recording of the Notice of Default.” (FAC ¶ 26.) Also, Plaintiffs allege that Martha Munoz did not have authority to sign on MERS’ behalf. However, they do not unequivocally allege that she had no authority. (FAC ¶ 19.) Here, Plaintiffs do not contest that their home loan was in default. Plaintiffs also do not allege that but for the alleged deficiencies, foreclosure would be avoided.

Plaintiffs allege Defendants violated Civ. Code 2924.18 by noticing a foreclosure sale while their loan modification application was pending. The Civil Code provides: “If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer, a mortgage servicer, trustee, mortgagee, beneficiary, or authorized agent shall not record a notice of default, notice of sale, or conduct a trustee’s sale while the complete first lien loan modification application is pending, and until the borrower has been provided with a written determination by the mortgage servicer regarding that
borrower’s eligibility for the requested loan modification.” (Civ. Code § 2924.18(a)(1); see FAC ¶ 29.) Plaintiffs allege that Defendants did not assess Plaintiffs’ financial situation correctly. (FAC ¶ 30.) However, they do not allege that their application was still pending a response. Thus, Plaintiffs have not alleged sufficient facts to establish a violation of Civil Code § 2924.18.

No opposition has been received from Plaintiffs to show that the defects on this and the other causes of action addressed below could be cured by amendment.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the first cause of action.

Second Cause of Action – Unfair Business Practices

The UCL prohibits business practices that are fraudulent, unlawful, or unfair. (B & P Code § 17200.) “A plaintiff alleging unfair business practices under [Bus. & Prof. Code § 17200 et seq] must state with reasonable particularity the facts supporting the statutory elements of the violation.” (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.)

Here, Plaintiffs simply list conclusory allegations that Defendants acted unfairly. For example, Plaintiffs allege Defendants charged unwarranted fees without indicating which fees and how the fees were unwarranted. (FAC ¶ 33.) Another example is the conclusory allegation that Defendants violated California Civil Code section 1095 with no information on why this section applies and how it was violated. (Ibid.) Accordingly, Plaintiffs have not stated facts sufficient to support a UCL action.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the second cause of action.

Third Cause of Action – Negligence

The court of appeal has stated that “as a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark v. Heart Fed. Sav.& Loan Ass’n (1991) 231 Cal. App. 3d 1089, 1096 [finding no lender duty of care in preparing property appraisal].) Likewise, loan servicers owe borrowers no duty of care either. (See Castaneda v. Saxon Mortgage Services (E.D. Cal. 2009) 687 F.Supp.2d 1191, 1198.) A fiduciary duty only arises if the bank, lender or servicer takes on a “special relationship” with the borrower. (See Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979-81.)

Plaintiffs allege the following in support of the third cause of action: “At all times relevant herein, BAYVIEW and BNY MELLON, acting as PLAINTIFFS lenders and/or servicers, had a duty to exercise reasonable care and skill to
maintain proper and accurate loan records and to discharge and fulfill the other incidents attendant to the maintenance, accounting and servicing of loan records, including, but not limited, disclosing to PLAINTIFFS the status of any foreclosure actions taken by it, disclosing who owned PLAINTIFFS Loan to PLAINTIFFS, refraining from taking any action against PLAINTIFFS that it did not have the legal authority to do, and providing all relevant information regarding the Loan PLAINTIFFS had with them to PLAINTIFFS.” (FAC ¶ 39.)

However, Plaintiffs have not alleged any facts suggesting that Defendants’ conduct exceeded the scope of the usual lender of money. Plaintiffs have not alleged that they actually initiated a loan modification process with Defendants. (FAC ¶¶ 28-30.) Although they claim Defendants did not assess Plaintiffs’ financial situation correctly, they do not provide any ultimate facts suggesting that Defendants owed a duty to assess Plaintiffs’ financial situation or that they did so negligently. (See Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67 [“The Biakanja factors do not support imposition of a common law duty to offer or approve a loan modification.”].)

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the third cause of action.

Fourth Cause of Action – Promissory Estoppel

The elements of a cause of action for promissory estoppel are: (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance. (Aceves v. U.S. Bank, N.A. (2011) 192 Cal.App.4th 218, 225.)

The allegations in the FAC do not demonstrate a “clear and unambiguous” promise. Plaintiffs allege that Bayview and BNY Mellon promised to modify Plaintiffs’ loan based on the assumption that Bayview “agreed to offer a 3 month HAMP Trial Period. . . to all borrowers, including PLAINTIFFS, who met the HAMP criteria and passed the NPV test.” (FAC ¶ 50.) However, Plaintiffs do not allege that Defendants promised to modify their specific loan. Moreover, Plaintiffs do not allege detrimental reliance on any promise. Although they suggest that they relied by completing an application and making payments, such actions in themselves do not show detrimental reliance. (FAC ¶ 49.) Plaintiffs do not allege that their reliance prevented them from taking other action to avoid foreclosure.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the fourth cause of action.

Fifth Cause of Action – Breach of Contract

Plaintiffs allege Defendants breached their Servicer Participation Agreement (“SPA”) with Fannie Mae by failing to apply the Home Affordable Modification Program’s (“HAMP”) criteria to all loans serviced, including Plaintiffs’, and failing to offer Plaintiffs a HAMP Trial Period home loan modification. (FAC ¶¶ 56-59.) Federal courts have held that plaintiffs are mere incidental beneficiaries and have no rights to sue under the SPA. (See Zendejas v. GMAC Wholesale Mortg. Corp. (E.D. Cal. 2010) 2010 WL 2490975, *3.) Thus, it appears that Plaintiffs lack standing to assert the fifth cause of action.

The demurrer is SUSTAINED WITHOUT LEAVE TO AMEND as to the fifth cause of action.

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1
The court notes the recently decided opinion in Alvarez v. BAC Home Loans Servicing, L.P.; First District, Div. Three; filed Aug. 7, 2014. Plaintiffs do not allege any of the facts of breach of duty at issue in the negligence cause of action in Alvarez – i.e., failing to review the application in a timely manner; foreclosing on the property while the application was pending; or relying on incorrect information in processing the application. Plaintiffs have not opposed the demurrer or argued that they could amend to allege such facts.